How To Calculate Total Rate Of Return

Total Rate of Return Formula:

\[ TRR = \frac{(Ending\ Value + Income - Beginning\ Value)}{Beginning\ Value} \times 100 \]

Total Rate of Return (TRR):

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1. What Is Total Rate Of Return?

Total Rate of Return (TRR) is a comprehensive measure of investment performance that includes both capital gains and income generated from the investment. It represents the total percentage return on an investment over a specific period.

2. How Does The Calculator Work?

The calculator uses the Total Rate of Return formula:

\[ TRR = \frac{(Ending\ Value + Income - Beginning\ Value)}{Beginning\ Value} \times 100 \]

Where:

\( Ending\ Value \) — Current value of the investment
\( Income \) — Total income received (dividends, interest, etc.)
\( Beginning\ Value \) — Initial investment amount

Explanation: The formula calculates the total percentage return by considering both the change in investment value and any income generated during the holding period.

3. Importance Of TRR Calculation

Details: TRR provides a complete picture of investment performance, allowing investors to compare different investment opportunities and assess the effectiveness of their investment strategies.

4. Using The Calculator

Tips: Enter all values in the same currency unit. Ensure beginning value is greater than zero. Income includes all cash flows received during the investment period.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between TRR and simple return?
A: Simple return only considers capital gains, while TRR includes both capital gains and income, providing a more comprehensive performance measure.

Q2: How often should I calculate TRR?
A: Regular calculation (quarterly or annually) helps track investment performance and make informed decisions about portfolio adjustments.

Q3: What types of income should be included?
A: Include all investment income such as dividends, interest payments, rental income, and any other cash distributions received.

Q4: Can TRR be negative?
A: Yes, TRR can be negative if the total value (ending value plus income) is less than the beginning investment value.

Q5: How does TRR compare to annualized return?
A: TRR shows total return for a specific period, while annualized return converts this to an equivalent yearly rate for comparison across different time periods.